How ABLE Can Save Your Disability Benefits

ABLE accounts

Imagine suffering from a disability that makes it practically impossible to work. It’s likely you’d need any help that comes your way, including Supplemental Security Income (SSI) and Medicaid.

Now, imagine you manage to accrue $2,000 in a savings account through your efforts, or with help from friends and family. But then, once you reached that amount, you’re no longer eligible for SSI or Medicaid.

It doesn’t seem right that you can’t save for your future without jeopardizing your present. That’s exactly the problem ABLE accounts are designed to fix.

What are ABLE accounts?

The Achieving a Better Life Experience (ABLE) Act of 2014 was passed to allow disabled Americans to save for the future without risking their other federal benefits. It allowed states to establish savings accounts similar to 529 college savings funds. In fact, ABLE accounts are designated as 529As.

As with college savings plans, ABLE accounts can be established on behalf of beneficiaries. This structure is important in cases where a caretaker might not be around later, and someone with a disability needs to prepare for future costs.

While states are responsible for ABLE account administration, it’s important to note that you don’t have to be a resident of a state to take advantage of its program, just as with a college 529 plan. The National Down Syndrome Society follows state and federal ABLE-related legislation and has a list of states that offer 529A accounts.

Who can establish a 529A?

You can open an ABLE for yourself, your child, or another beneficiary, but in all cases, the person receiving the funds must meet the four eligibility requirements.

  1. Your condition must be a physical or mental impairment that is medically determinable. It must result in severe functional limitations, or you must be blind.
  2. The disability must be expected to last for at least 12 months or result in death (this includes certain cancers and brain disorders).
  3. Blindness or disability must have occurred before your 26th birthday.
  4. You must have a copy of a physician’s diagnosis of the condition. While you don’t need the diagnosis in hand to open the 529A, you still need to obtain it so that you can provide a copy to the IRS or the ABLE program upon request.

ABLE accounts are also subject to continued monitoring by tax year. You might need to recertify, depending on the impairment.

What are the limits of ABLE accounts?

How much you can contribute to an ABLE account is determined by the gift tax exclusion. For tax years 2013 to 2017, the exclusion is $14,000. However, Bloomberg BNA expects that amount to increase to $15,000 for the 2018 tax year.

Money to an ABLE account is contributed after-tax, but the funds grow tax-free as long as you use withdrawals for legitimate expenses (more on this below). As with 529 college savings plans, many states offer investment options so that the money in a 529A can grow faster. Realize, though, that you can’t roll regular 529 funds into a 529A.

It’s also important to note that once an ABLE account exceeds a value of $100,000, the SSI benefit received by the beneficiary is suspended until the 529A account value drops back below that amount. However, Medicaid eligibility is not impacted by the size of the ABLE account.

Finally, realize that upon a beneficiary’s death, other parties can have claims on the remaining money in a 529A. First, outstanding qualified disability claims are satisfied. Then, the beneficiary’s state of residence has the option claim money in the account for a Medicaid payback. A state can claim an amount that equals what it spent through its Medicaid program since the account’s establishment date. After those payments, any money left over goes to the beneficiary’s estate.

What are qualified disability expenses?

Withdrawals from ABLE accounts are tax-free, but they’re expected to be for the benefit of the eligible individual and cover “qualified disability expenses.” According to the Social Security Administration, the following items meet that designation:

  • Education
  • Housing (including utilities, insurance, and property taxes)
  • Health care
  • Prevention and wellness
  • Transportation
  • Assistive technology and related services
  • Employment training and support
  • Legal fees
  • Financial management
  • Administrative services
  • Expenses related to ABLE account oversight and monitoring
  • Basic living expenses
  • Funeral and burial costs

Using the money for unqualified expenses can lead to the payment of income tax plus a 10 percent penalty, as with a 529 college savings account.

Benefit from an ABLE account

If you are caring for a disabled individual, or if you have a disability yourself, an ABLE account can be one way to save money for expenses and care.

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